403b Calculator

A 403(b) is a tax-advantaged retirement savings plan available to employees of non-profit organizations, public schools, universities, hospitals, and other 501(c)(3) tax-exempt entities. It works similarly to a 401(k) in that contributions are made pre-tax and grow tax-deferred until withdrawal in retirement.

Both plans offer tax-deferred retirement savings and have similar contribution limits, but a 403(b) is only available to employees of non-profit and public-sector organizations, while a 401(k) is offered by for-profit companies. One notable difference is that 403(b) plans may have access to an additional 'catch-up' contribution provision for employees with 15 or more years of service with the same employer.

For 2024, the IRS limit for employee 403(b) contributions is $23,000. If you are age 50 or older, you can make an additional catch-up contribution of $7,500, bringing your total potential contribution to $30,500. An additional special catch-up provision may allow employees with 15+ years of service to contribute up to $3,000 more per year.

Traditional 403(b) contributions are made pre-tax, meaning they reduce your taxable income in the year you make them. You pay income taxes only when you withdraw the funds in retirement. Some plans also offer a Roth 403(b) option where contributions are made after-tax but withdrawals in retirement are tax-free.

Employer matching is not required, but many non-profit employers do offer matching contributions, often ranging from 50% to 100% of your contributions up to a defined limit (such as 3%–6% of your salary). Employer matches are essentially free money, so contributing at least enough to capture the full match is generally recommended.

You can withdraw funds from your 403(b) penalty-free starting at age 59½. Withdrawals before that age are generally subject to a 10% early withdrawal penalty plus ordinary income tax, unless you qualify for an exception such as disability, separation from service at age 55 or older, or substantially equal periodic payments.

A commonly used estimate is 6%–8% annually, based on historical long-term average returns of diversified stock and bond portfolios. More conservative investors might use 5%–6%, while those with more aggressive allocations might use 7%–9%. Remember that actual returns vary year to year and past performance does not guarantee future results.

If you leave your employer, you generally have four options: leave the funds in your former employer's plan (if allowed), roll the balance into your new employer's plan, roll it into an IRA, or take a cash distribution (which triggers taxes and potentially a penalty). Rolling over to an IRA or new plan is usually the most tax-efficient choice.